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Gasoline markets are looking more balanced as we move through the peak period for demand in the Atlantic basin. Despite US refineries processing record volumes of crude oil, refinery problems in Latin America have ensured that US Gulf Coast refiners have had an outlet for a lot of their production and have also drawn some cargoes away from the US East Coast. Steady demand from West Africa has also helped mop up European barrels amid refinery problems in Germany. But European supplies should be stepping up further and exports to the US should pick up again in the coming weeks, bringing still high US gasoline stocks back into focus.

European gasoline supplies should start to recover as the impact of refinery outages in Germany and Switzerland fade. The lengthy downtime at Total’s 0.21 mb/d Leuna refinery has forced some retailers to source supplies by rail, as German logistics are complicated by low water levels on the Rhine. The Leuna outage came as BP extended a planned turnaround by weeks at its 82 thousand b/d Lingen refinery in western Germany and as planned work at Varo’s 68 thousand b/d Cressier plant in Switzerland tightened inland markets but these are now wrapping up.

India, one of Asia’s biggest gasoline exporters, has been forced to start importing the product again amid heavy refinery work needed to meet new fuel specs, but the market faces a similar supply recovery East of Suez, with Chinese refiners grappling with domestic oversupply amid a slowdown in demand growth that should lead to higher gasoline exports in the coming months.

A slowdown in Asia would likely back out some imports of European mixed aromatics, which would find their way back into the Atlantic basin gasoline pool, especially if the currently strong West African demand abates. But US import requirements are declining because of the expansion of the US-flagged Jones Act tanker fleet. Gasoline shipments from PADD 3 to PADD 1 by tanker or barge surged by 80 thousand b/d y/y to nearly 0.52 mb/d in April, and shipments should continue to grow as new vessels are still joining the fleet. The surge in inter-PADD flows goes a long way in explaining why the market has been soft at times. Simply put, it is supply that has grown faster than demand, increasing competition and weighing on price.

Higher Jones Act flows make PADD 1C—the southern states in PADD 1—uniquely vulnerable to being quickly oversupplied. Much of the stock overhang in PADD 1 is now in PADD 1C, while there is plenty of free ullage in the New York Harbor. Once European exports recover, they will be aimed squarely at the RBOB delivery point. USEC markets are likely to be building stock during July and August if imports average between 0.65 mb/d and 0.7 mb/d.

Winter will be far more difficult. High flows from PADD 3 will continue and competition from refineries in PADD 2 should intensify. New pipeline capacity has opened up markets in eastern PADD 2 (eastern Ohio) and western PADD 1 (Pittsburgh) to Midwestern refineries that have been traditionally supplied with imported product. Given the typical 0.2-0.3 mb/d drop in gasoline demand in PADD 1 from the summer highs to the late autumn lows, imports will have to fall sharply to under 0.5 mb/d for the market to remain in balance. But if this happens, European refineries are likely to struggle with significant oversupply.